Have you talked to your insurance agent about pollution liability?

By Darren Berg

Environmental awareness has evolved significantly over the years, and construction projects are facing increasing scrutiny to adopt greener and more sustainable practices. However, many business owners in the construction industry lack a true understanding of the different types of risks that their contracting operations expose them to environmental liability.

Utility contracting operations create potential environmental liability from on-site operations, including equipment use and maintenance, as well as transportation and disposal practices. Jobsite activities such as excavation, trenching, tunneling, and boring can inadvertently disturb soil contamination, damage subsurface utilities or storage tanks, and contribute to soil erosion. Additionally, the handling, transportation, and disposal of waste generated on the jobsite, including hazardous chemicals, contaminated soil, wastewater, and sludge, further exposes the contractor to environmental liability. To mitigate these issues, your business must understand key points to protect stakeholders from a pollution incident.

Commercial general liability insurance policies often exclude pollution coverage.

Insurance carriers began issuing pollution exclusions over forty years ago in response to environmental legislation such as the Resource Conservation and Recovery Act (RCRA) and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly called Superfund. A pollution incident may negatively impact land, air, plants, water, or wildlife. It is in your best interest to carefully review your policy’s definition of property damage to determine whether it includes coverage for such incidents. Commercial general liability (CGL) policies have varying definitions and coverages for pollution conditions. For example, natural resources may not align with the conventional understanding of “property damage” covered by a CGL policy. Ask your insurance advisor whether your policy’s definition of “property damage” encompasses natural resource damage to clarify coverage for such damages. CGL insurance carriers will offer endorsements and coverage give-backs for pollution conditions, but these endorsements can be convoluted when matched with the policy’s pollution exclusion. The table below provides coverage considerations to discuss with your insurance advisor.

Subject	Discussion Guide
Defense Expenses	Disputing a pollution claim can be expensive. Check how your policy handles defense costs. Some policies may reduce the money available for settlement or judgment due to defense costs (inside the limits of liability). Other policies state that defense expenses will not reduce the available limit for settlement or judgment (outside the limits).
Limits of Insurance	Claims related to pollution have a significant financial impact. When insurance coverage is set at lower limits, there is a higher chance of having insufficient insurance to cover cleanup costs, resulting in out-of-pocket expenses. CGL insurance policies have a fixed maximum payout which is the highest amount the insurer will cover for the policyholder. Should a contractor choose to include a pollution endorsement in their CGL policy, the coverage limits are often combined with the CGL policy. This implies that claims that occur frequently can lead to lower coverage limits.
Non-Owned Disposal Sites	Environmental laws can make individuals responsible for the pollution of a disposal site even if the waste was correctly disposed of. CGL policies typically do not address non-owned disposal sites. Should a disposal site face environmental issues, Federal, State, and Local regulatory agencies might examine hazardous waste manifests and demand that all involved in the waste disposal contribute to the cleanup costs.
Transportation	Pollution events can involve over-the-road accidents, leakage from trucks or trailers, and incidents during loading or unloading operations. Some companies add the CA 9948 endorsement to their auto policy however its coverage can be limited and may not cover third-party exposures.

Examples of pollution claims from utility contractors are provided below.

• A utility contractor was fixing a sewer system and accidentally broke a natural gas line which led to the evacuation of nearby businesses. The business owners claimed they lost revenue because of the accident. However, the insurance carrier denied these claims because of the policy’s pollution exclusion.

• A regulatory agency fined a utility contractor for natural resource damage resulting from the release of sediments into a waterway. The contractor had left an unfinished concrete vault open and heavy rains washed away sediment controls, allowing sand and silt to be released from the unfinished vault.

• A utility contractor was hired to control the vegetation that grew along a power line right of way and applied an herbicide to the area to reduce the vegetation. Due to a rainstorm, the herbicide was washed onto nearby property, and the landowner filed a lawsuit. The contractor filed a claim with their general liability insurance carrier; however, the carrier denied the claim under the pollution exclusion.

• A utility contractor unknowingly spread contaminated soil across a project site. The contractor was named in a lawsuit for exacerbating the extent of contamination. After lengthy deliberation, the contractor was deemed liable for $250,000 in expenses for cleanup and legal defense.

To verify your pollution coverage, speak with your insurance advisor. An alternative approach to CGL endorsements for pollution coverage would be to secure a contractor’s pollution liability (CPL) policy; these policies often include coverage for natural resource damage, non-owned disposal sites, and other pollution conditions your business may encounter.

In addition to discussing pollution liability with your insurance advisor, consider mitigating environmental risks through employee training.

Employee safety is top of mind for most construction companies, however, safety training can be limited in the scope of the curriculum when it comes to environmental exposures. Having written mitigation protocols for pollutants your team may encounter on the job and expanding your training topics may minimize the risk of a pollution event. Utility contractors can incorporate Pollution Prevention Practices into their safety culture to address environmental exposures such as: 

• Lead-Based Paint
• Legionella
• Mold
• Responding to Spills
• Solid Waste Management
• Utility Locating
• Crystalline Silica
• Fugitive Dust Control
• Stormwater Management
• Stockpile Management
• Subcontractor Vetting
• Cargo Securement
• Clean Imported Fill
• Erosion and Sedimentation Control
• Construction Vehicle and Equipment Washing

Performing an environmental exposure assessment for your business can help you identify potential pollution issues before an event causes a financial burden on your daily operations. Be proactive with your risk management team to protect your work from potential environmental liability.

---

Author Bio

Darren Berg is President of Environmental Risk Professionals, LLC, an environmental consulting firm that works with business owners to identify and mitigate their environmental risks and minimize costly pollution claims. During his 26-year career in consulting, he has worked with federal, state, and private clients. He has a B.S. in Environmental Engineering from Northern Arizona University and is a Certified Environmental Manager. His team administers Certified Environmentally Responsible Contractor (CERC).